Wall Street gains over 1% ahead of Fed decision

US equities finished higher on Tuesday, as investors awaited monetary policy decision form the Federal Reserve. The Dow Jones rose 1.1% to 34,086, the S&P Index added 1.5% to 4,077 and the Nasdaq was 1.7% higher at 11,585. Several earning results were in focus with McDonald’s beating the estimates and Caterpillar missing the forecasts. General Motors has exceeded the expectations and offered an upbeat full-year outlook. In economic news Q4 Employment Index came lower than expected and home prices declined by smaller amount than anticipated in November. January consumer confidence unexpectedly declined, while Chicago PMI fell further into contraction territory. Treasury yields were lower with the yield on the 2-year note down 5 bps to 4.21% and the yield on the 10-year note decreasing 2 bps to 3.52%. US Dollar slipped with DXY down 0.15% at 101.77. The highlight of today is the Fed’s Monetary Policy Decision with 25 bps increase widely expected. Labor data will also be in focus with ADP Employment Change Report and Job Opening and Labor Turnover Survey. There also be ISM Manufacturing Index and Construction Spending data.

Military actions continue in Ukraine, with Donetsk, Herson and Lugansk as main hotspots. Russian Ministry of Defense claimed Russian forces have taken control of Blagodatnoye, Donetsk area. Today the law of not selling oil to countries, which implement price cap, comes into force. Russia’s equity market on Tuesday traded in green zone after the new IMF forecast on Russian growth in 2023: IMOEX ended up +0.96% at 2225 and RTSI traded 1.4% higher, breaking again 1000 first time in two weeks to 1001. Ruble strengthened by 0.83% vs USD to 69.82. Wednesday opening has shown continuing rally: +0.86% in IMOEX and +0.43% RTSI. As for bonds, with RGBITR (gov bonds) and RUCBITR (corp bonds) raised today morning to highest since beginning of 2023 year of 499.64 and 614.95, correspondingly, mainly by short and mid duration bonds, with 10Y benchmark yield rising to 10.33%.

European markets remained almost flat during yesterday and today’s trading session, following investors anticipating Fed interest rate decision, as well as EU growth data. EU statistics yesterday surprised investors with 0.1% quarterly growth on 4Q 2022 (vs forecasted contraction of 0.1%). On the stock markets, the DAX index in Germany traded flat this morning at 15,130 level, the FTSE 100 in the U.K. gained 0.12% to 7,781 points, while the CAC 40 in France is up 0.07% at 7,087 level. 10Y GILT and 10Y Deutsche Bundus yields got lower by 3bps and 2bps, correspondingly. Focus of investors is mainly still on the second half of week, where ECB policy decisions and key economic data, especially EU inflation are scheduled to be disclosed. Tomorrow ECB and Bank of England will make new rate announcements, with investors’ forecast to 50bp increase both. Also Fed chair Jerome Powell speech will also bring EU investor’s attention.

The NTB secondary market closed on a negative note with average yields increasing by 15bps across the curve. Average yields across the long end rose by 32bps while average yields across the short & medium ends of the curve, remained unchanged. Nov 9, 2023 saw some selling pressure.

In the OMO secondary market, average yields closed lower dropping by 50bps with average yields across the short end dropping by 75bps and medium & long ends remaining unchanged. Feb 14, 2023 bill witnessed some buying interest.

The FGN bonds secondary market closed on a negative note with average yields across the curve rising by 17bps. Average yields on the short, medium & long ends rose by 7pbs, 25bps & 15bps respectively. The Mar 2024 bond was the best performer while the Apr 2049 bond was the worst performer.

SSA opens firm to end a run of losses ahead of FOMC late today. Another red day of trading on Tuesday with NGERIA (-2.125) again the underperformer; bonds closed about .75pts off session lows as the curve caught a bid later in the session more so on duration. KENINT (-1.375) also saw more than a fair share of selling with long bonds particularly offered while GHANA (-.50) soured ahead of the deadline on DDE which was ultimately extended to 7 February after the close. ZAMBIN (+.125) also firm even as China wants multilateral development banks such as the World Bank to also provide debt relief potentially extending already drawn-out restructuring talks.